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What is a public sector pension worth?

Author

Listed:
  • Richard Disney

    (Institute for Fiscal Studies and University of Sussex)

  • Carl Emmerson

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

  • Gemma Tetlow

    (Institute for Fiscal Studies)

Abstract

We measure accruals in defined benefit (DB) pension plans for public and private sector workers in Britain, using typical differences in scheme rules and sector-specific lifetime age-earnings profiles by sex and educational group. We show not just that coverage by DB pension plans is greater in the public sector, but that median pension accruals as a % of salary are almost 5% higher among DB-covered public sector workers than covered private sector workers. This is largely driven by earlier normal pension (retirement) ages. For workers of different ages in the two sectors, marginal accruals also vary as a result of differences in earnings profiles across the sectors. The differences in earnings profiles across sectors should induce caution in using calculated coefficients on wages from cross sections of data in order to estimate sectoral wage effects.

Suggested Citation

  • Richard Disney & Carl Emmerson & Gemma Tetlow, 2007. "What is a public sector pension worth?," IFS Working Papers W07/17, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:07/17
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    3. Danzer, Alexander M. & Dolton, Peter J., 2012. "Total Reward and pensions in the UK in the public and private sectors," Labour Economics, Elsevier, vol. 19(4), pages 584-594.
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    7. Bonaccolto-Töpfer, Marina & Castagnetti, Carolina & Prümer, Stephanie, 2022. "Understanding the public-private sector wage gap in Germany: New evidence from a Fixed Effects quantile Approach∗," Economic Modelling, Elsevier, vol. 116(C).
    8. Philip Murphy & David Blackaby & Nigel O'Leary & Anita Staneva, 2020. "Understanding What Has Been Happening to the Public‐Sector Pay Premium in Great Britain: A Distributional Approach Based on the Labour Force Survey," British Journal of Industrial Relations, London School of Economics, vol. 58(2), pages 273-300, June.
    9. David Sturrock, 2023. "Wealth and welfare across generations," IFS Working Papers W23/15, Institute for Fiscal Studies.
    10. Eich, Frank, 2009. "Evaluating public and private sector pensions: The importance of sectoral pay differentials," EconStor Preprints 54561, ZBW - Leibniz Information Centre for Economics.
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    12. Antoine Bozio, 2017. "Taking contributions into account in public‑private comparison of pensions. Comment on “Differences between public and private sector pensions: an analysis based on career profile simulations”," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 491-492, pages 41-46.
    13. Marco Bertoni & Giorgio Brunello, 2016. "Later-borns Don’t Give Up: The Temporary Effects of Birth Order on European Earnings," Demography, Springer;Population Association of America (PAA), vol. 53(2), pages 449-470, April.
    14. Meijdam, A.C. & Ponds, E.H.M., 2013. "On the Optimal Degree Of Funding Of Public Sector Pension Plans," Other publications TiSEM 1c5b7af1-e1ee-4d01-a341-f, Tilburg University, School of Economics and Management.
    15. Bertoni, Marco & Brunello, Giorgio, 2013. "Laterborns Don't Give Up: The Effects of Birth Order on Earnings in Europe," IZA Discussion Papers 7679, Institute of Labor Economics (IZA).
    16. Danzer, Alexander M. & Dolton, Peter, 2011. "Total Reward in the UK in the Public and Private Sectors," IZA Discussion Papers 5656, Institute of Labor Economics (IZA).
    17. Etheridge, Ben, 2015. "A test of the household income process using consumption and wealth data," European Economic Review, Elsevier, vol. 78(C), pages 129-157.
    18. Ponds, E.H.M. & Severinson, C. & Yermo, J., 2012. "Implicit debt in public sector plans : An international comparison," Other publications TiSEM 8263bb65-8b50-4890-9252-0, Tilburg University, School of Economics and Management.
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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